Servicing

The IAS360 House Price Index rose 1.1% on a national level in June and was 11.5% below the level recorded a year earlier, according to Integrated Asset Services LLC, Denver. The index tracks monthly changes in the median sales price of detached single-family residences in "neighborhoods" in 360 counties across the United States, the company said. Three of the four U.S. regions designated by the index experienced house price appreciation in June, while the West recorded a 0.5% decline, IAS reported. The gains in the other regions were 4.7% in the Midwest, 1.7% in the South, and 0.4% in the Northeast. "The IAS360 HPI is not a seasonally adjusted or smoothed index," said Dave McCarthy, president and chief executive of IAS. "Typically, small month-to-month appreciation is present in the summer due to increased seasonal housing demand. Therefore, strengthening of the market in the summer can occur even when the longer-term market trend might be downward." The company, a provider of default management and residential collateral valuation services, can be found online at http://www.iasreo.com.

Only 32% of 50 banks in a Federal Reserve Board survey said they have securitized or sold "conforming jumbo" mortgages to Fannie Mae or Freddie Mac in the past three months. But 44% of the banks expect to securitize or sell jumbo loans to the government-sponsored enterprises over the next six months, according to the Fed's July survey of senior loan officers. Congress raised the maximum loan limit for the GSEs from $417,000 to $729,050 in high-cost areas as part of an economic stimulus package President Bush signed into law Feb. 13. The two GSEs began purchasing jumbos in April and, according to securities filings, Fannie purchased $947 million in jumbos in the second quarter and Freddie $471 million. In its 10-Q filing, Freddie said it does "not anticipate purchasing material amounts of conforming jumbo product in 2008," due to increased competition, especially from the Federal Housing Administration. The Fed's survey also found that 75% of domestic banks tightened their lending standards on prime mortgages -- up from 60% in the April survey. And 80% of respondent banks tightened their standards for approving applications for home equity lines of credit.

Effective immediately, Fannie Mae has increased the cash incentives it will pay servicers for successfully completing workouts, such as repayment plans and making "HomeSaver" advances to help delinquent borrowers catch up on their payments. Fannie has doubled the cash incentive for repayment plans to $400, provided that the mortgage is "brought current upon the successful completion of the repayment plan," the company's Aug. 11 servicing guide says. Fannie also raised the incentive fee for the new HomeSaver Advance from $600 to $700. However, the servicer will be paid in installments -- $200 for delivering the note on the unsecured advance to Fannie and the remaining $500 once the borrower makes three timely payments on the first mortgage. Servicers made 17,900 HomeSaver advances to delinquent borrowers in the second quarter, and the average size of the personal note was $7,100, according to the government-sponsored enterprise. Fannie Mae also started paying $700 for loan modifications on Aug. 11, and it instructed servicers to stop charging borrowers $500 for processing loan modifications. Incentive fees for short sales range from $1,000 to $1,500, depending on the loss severity to Fannie. The incentive paid for a deed-in-lieu transaction is $1,000. The GSE can be found online at http://www.fanniemae.com.

An attorney who spoke at the Western States Loan Servicing Conference in Las Vegas predicts that the Federal Trade Commission will produce a "significant enforcement action" involving a major mortgage servicer within the next several months. Anand Raman, a partner at Skadden, Arps, Slate, Meagher & Flom, said the FTC has broad authority to scrutinize loan servicing practices under its broad authority to address "unfair and deceptive trade practices," and that even practices that are not "manifestly illegal" may get servicers into trouble. Issues the FTC and other regulatory agencies are likely to investigate include internal documentation, monthly billing statement information, and customer service, he said, noting that regulators are under political pressure to get tough with the mortgage industry. "There is a lot of pressure to bring home scalps," Mr. Raman said during a panel session at the conference, which was sponsored by the California Mortgage Bankers Association. "Unfortunately, those servicers that are not operating at a best-practices level make easy targets."

Thirty-two classes of notes issued by six collateralized debt obligations linked to subprime residential mortgage-backed securities have been downgraded by Fitch Ratings. All but one of the downgraded classes were removed from Rating Watch Negative. The affected securities are as follows: eight classes from Lexington Capital Funding Ltd./Inc., a cash flow structured finance CDO; six classes from Blue Heron Funding II Ltd.; six classes from Ischus CDO II Ltd./LLC, a cash flow structured finance CDO; five classes from NovaStar ABS CDO I Ltd., a cash flow structured finance CDO; four classes from Lexington Capital Funding III Ltd./LLC, a hybrid cash and synthetic CDO; and three classes from Mulberry Street CDO Ltd./Corp., a cash flow structured finance CDO. The downgrades were attributed to collateral deterioration in subprime RMBS, as well as (in the cases of Lexington III and Mulberry Street) alternative-A RMBS and (in the cases of Lexington, Blue Heron, and Mulberry Street) structured finance CDOs with underlying exposure to subprime RMBS.

Thirty-five classes from four Structured Adjustable Rate Mortgage Loan Trust transactions backed by prime jumbo mortgage collateral issued in 2005 have been downgraded by Standard & Poor's Ratings Services. In addition, S&P affirmed its ratings on 62 other classes from the series. The downgrades of four classes were attributed to principal writedowns due to credit support depletion, and the remaining downgrades "reflect our opinion that projected credit support for the affected classes is insufficient to maintain the previous ratings, given our current projected losses," the rating agency said.

The Issuer Default Ratings of Chevy Chase Bank FSB, Bethesda, Md., have been downgraded by Fitch Ratings, partly for mortgage-related reasons. The long-term IDR was downgraded from BBB-minus to BB-plus, and the short-term IDR was downgraded from F3 to B. The downgrades were based on the "continued deterioration" of asset quality, as nonperforming assets rose from 1.7% of loans and real estate owned at Dec. 31, 2007, to 4.2% at June 30, Fitch said. "In March 2008, Fitch affirmed the company's ratings with a negative outlook that included the expectation of continued deterioration," the rating agency noted. "However, the pace in recent periods exceeded the initial expectation." Fitch noted that the bank has discontinued the origination of payment-option adjustable-rate mortgages, which had been "its primary lending product."

John A. Vella has been named senior vice president and managing director of the Mortgage Special Operations business of Residential Capital LLC, a Minneapolis-based subsidiary of GMAC Financial Services. Mortgage Special Operations provides subservicing and asset management for high-risk loans in the United States, Canada, and the United Kingdom. ResCap said it is expanding the business to "align with a growing demand from hedge funds, investment bankers, and other institutional investors for mortgage servicing and loss mitigation of their loan portfolios." Mr. Vella, who will be based in California, has more than 24 years of experience in the mortgage industry, including senior management experience at Household Automotive, Option One Mortgage, Freddie Mac, and the Federal Deposit Insurance Corp. He was most recently president and chief executive officer of EMC Mortgage. ResCap can be found on the Web at https://www.rescapholdings.com.

BankUnited Financial Corp., Coral Gables, Fla., has reported a mortgage-related net loss of $117.7 million ($3.35 per share) for the second quarter, compared with net income of $23.2 million ($0.62 per share) a year earlier. The loss was chiefly attributable to a $130 million provision for loan losses. Alfred R. Camner, the company's chairman and chief executive officer, said the quarter was "a mix of strong results from our core banking operations offset by continued deterioration in the mortgage portfolio." Mr. Camner pointed to the company's launch of a Mortgage Assistance Program to provide relief to borrowers with payment-option adjustable-rate mortgages. "We will be reaching out to thousands of option ARM borrowers, the largest portion of which are in Florida, to place them into traditional mortgage products, including government agency loans," he said. "We intend to waive prepayment fees and to create additional incentives for these borrowers to make the transition both easy and affordable." The company can be found online at http://www.bankunited.com.

Mortgage-related bond insurer Assured Guaranty Ltd., Hamilton, Bermuda, recorded $545.2 million in net income during the quarter ended June 30 but noted that the higher earnings stemmed primarily from accounting gains that are expected to fall to zero over time. Like some of its peers, the company credited an "increase in after-tax unrealized gains on credit derivatives" as the principal reason for a notable increase in net income in the most recent earnings period. "The company's credit derivatives are generally held to maturity, and management expects that the unrealized gain or loss on a credit derivative will reduce to zero as the exposure approaches its maturity date, unless there is a payment default on the exposure," Assured Guaranty said.